Alpha test pit just the start for Hancock Coal

For Perth mining magnate Gina Rinehart, the development of the new Galilee Basin coal region in Queensland represents the culmination of a long-held family ambition.

Her father, the famous prospector Lang Hancock, first pegged some of Hancock Coal’s Galilee tenements in the 1970s.

“There was not the demand for thermal coal that was anticipated today [at that time],” Ms Rinehart said at the recent opening of a $100 million test pit at Hancock Coal’s Alpha project. “Coupled with the lack of infrastructure, the Galilee Basin remained a future development.”

But as demand for coal continues to increase in Asia and India in particular, Hancock Coal thinks the timing is finally right to develop a $7.5 billion mining, rail and port project at Alpha.

The test pit opened in early November by Ms Rinehart and Federal Resources Minister Martin Ferguson is only the start of a huge endeavour.

The test pit, which is 230 metres wide, 450 metres long and 65 metres deep will allow Hancock Coal to ship 150,000 run-of-mine tonnes (and 100,000 product tonnes) of the quality thermal coal to Asia to be tested by utilities. It will be a 24/7 drill and blast operation with coal trucked to a rail siding and then shipped to Gladstone.

Overburden removal began this month and the first coal is due to be reached by January, processing is to start in February and shipments will begin in the first and second quarter next year.

Hancock Coal, led by chief executive Paul Mulder, has letters of intent with several customers in five different countries. It is hoping to sign final contracts with customers – which could involve the sale of a stake in Alpha – by next year.

“It will be a cross-range of people that we can partner with that enables the building of the railway and the port and those equity participants can bring things from mining, infrastructure, offtake and shipping – the sort of experience that will obviously benefit the project,” Mr Mulder said.

The test pit is only a minor component of the full Alpha development. A bankable feasibility study is due to be completed by March and financial close is expected by next September, subject to government approvals.

Hancock Prospecting executive director Tad Watroba said Hancock Coal was financing the development of the test pit with its earnings from the Hope Downs iron ore joint venture with Rio Tinto in Western Australia. The larger project will be financed by selling minority equity stakes to customers, along with the sale of part or all of the neighbouring Kevin’s Corner project, which is of similar size and will also cost $7.5 billion to develop.

In a first for the Australian coal industry, Hancock Coal will construct and own integrated railway and the port facilities along with the mine. That has been the model for iron ore mines in the Pilbara, but not for coal on the east coast of Australia.

Hancock Coal has proven up 3.62 billion tonnes of coal resources at Alpha, of which 821 million tonnes are in the measured category, 1.2 billion tonnes indicated and 1.6 billion tonnes inferred. The coal has a calorific value of 5860 kilocalories a kilogram and 8.6 per cent ash. Ms Rinehart said the low ash and sulphur content made it an “environmentally favourable” substitute for lower-quality coals from Indonesia.

The Alpha project contains four coal seams that dip gently from east to west and vary in thickness from three metres to eight metres, which is suitable for open cut mining. The mine will produce 30 million tonnes of saleable coal a year once in full production and 40 million tonnes of run-of-mine material will be required for that yield. At the peak, there will be up to 11 truck-shovel/excavator fleets for waste removal and six draglines operating.

In the first year of production in 2014, Hancock Coal expects to produce 7.5 million tonnes of saleable coal. That will rise to the full 30 million tonnes by 2017.

Ms Rinehart said Hancock Coal had already secured letters of intent from customers for most production during the ramp-up years.

The coal will be processed in four coal handling and preparation plant modules, each rated at 1500 tonnes an hour. A conveyor will transport the material to the train load-out.

As part of the project, Hancock Coal will build a 495 kilometre multi-user railway to Abbot Point built with standard gauge track, as opposed to the smaller gauge used by QR National. Hancock Coal, along with BHP Billiton, has been named a preferred developer of an expansion to Abbot Point. Hancock Coal will have a 60-million-tonne-a-year stockyard at the port (including production from Kevin’s Corner) and the facilities will be able to accommodate Cape class vessels.

In a further sign of its commitment to the project, Hancock Coal this month awarded a $285 million contract to Ausenco and WorleyParsons to manage its delivery over the next four years.